Stocks rallied as the Federal Reserve prepares to deliver what is expected to be another jumbo rate hike.
With the S&P 500 SPX,
Slipping back to a June low below 3,670, the Dow Jones Industrial Average DJIA, the question;
It will slide below the 30,000 level on Tuesday. The Dow fell 313.45 points, or 1%, to close at 30,706.23 on Tuesday, giving the blue-chip gauge a 2.7% gain from perhaps the psychologically important 30,000 threshold. The Dow closed at a 2022 low of 29,888.78 on June 17.
The S&P 500 fell 1.1% on Tuesday to end at 3,855.93. It was up 5.2% from the large-cap benchmark’s June 16 close of 3,666.77. Those mid-June lows are critical, with analysts warning that a challenge to the economic outlook may soon come amid the Fed’s aggressive pace of tightening and hikes by other central banks.
Read: In the year Through 2022, the stock market rallied on each day of the Fed’s rate hike decision. Could it happen again on Wednesday?
The Fed is expected to offer an increase of 75 basis points, or 0.75 percentage point, when it wraps up its two-day meeting on Wednesday, with some traders and analysts drawing a full percentage-point hike on their odds. Investors focus on updated rate forecasts produced by Fed policymakers – called dot plots – to get a clue as to where the federal funds rate is likely to peak – at a level known as the terminal rate.
watch out The Fed funds rate could be as high as 5 percent, according to the $1.3 trillion asset manager.
The stock market’s decline over the past few weeks has priced in a 75-basis-point hike and a median Fed forecast for a terminal rate of 4.25 percent, or slightly lower, Sevens Report Research founder Tom Esaye wrote in a note Tuesday. An outcome consistent with this scenario would be unlikely to result in significant movement in either direction, “and would significantly make the June low any more likely than it is today,” he wrote.
A rise of 100 basis points and/or an average terminal rate forecast above 4.5% would be a different story: “This result confirms market expectations that the Fed is more hawkish than previously feared, and puts more pressure on stocks. This point could be a test of June lows barring material surprises,” Esaye said. “Defensive sectors and low-volatility ETFs should do better, but only relatively so, and we expect all 11 S&P 500 sectors to be lower on the day,” Issaye said.
Related: Investors Fear Why Full-Percentage-Point Fed Rate Hike Will ‘Shock’ Wall Street
The Fed will announce its rate decision at 2pm Eastern on Wednesday, with Fed Chairman Jerome Powell scheduled to hold a news conference at 2:30pm.